About a month ago, I posted on container shipping entity Euroseas (ESEA). I indicated in that post that ESEA had sidelined my thoughts on Global Ship Lease (GSL). There were two reasons for that
- With a smaller fleet, ESEA was easier to dissect.
- From a value perspective, I thought (and still think) that ESEA was more undervalued than GSL
But, I still discussed ESEA as having more than a few “if’s”. I think GSL has less of the question-marks.
As previously mentioned, I have had posted on GSL in the past. The last thread was in the Oct 2022 time-frame, and included a few subsequent updates in Oct - Nov 2022.
GSL: A second update for 2022 - Investment Analysis Clubs / Value Hounds - Motley Fool Community
Keeping with the prior groupings, GSL fleet can be divided into three groups
a. 15 years old or less: 22 vessels
b. 16 -20 years old: 21vessels
c. over 20 years old: 21 vessels
While the fleet has not changed drastically (one vessel sold), trying to value the fleet was a bigger challenge. Well, group a, in particular. What I ended up with
a. $951.50M
b. $321.30M
c. $211.63M
or $1484.43M for Total fleet (per end of Q1 2023)
Unlike ESEA, GSL does not have newbuilds, and does not have the concern of financing newbuilds. OTOH, in May 2023, GSL announced a deal to acquire four 8500-TEU vessels, each with an attached 2-year charter (plus an option year). GSL management think it is a good deal and mention that these are high specification vessels. Really? These vessels were built 18 - 20 years ago. The vessels might have been high-spec back then, but those features are probably mostly standard in ships today. There’s about $39M annual EBITDA for two years, and about $20M if the option year is exercised for all four vessels.
Per discussion in the earlier GSL thread, the first 2021 acquisition was Maersk implementing risk management - retaining access to familiar vessels while transferring vessel risk and disposal plans to another party. This deal is structured in a similar fashion. But, it favors the seller more than the first 2021 deal because the seller transfers upcoming vessel dry docks to GSL, on older vessels. Also, the per vessel acquisition cost is a lot higher for these vessels ( abt $31M for slightly larger vessels vs $17M for the earlier vessels). Not so rah-rah on this deal.
GSL has added over $188M in contract coverage for 2023, with a huge chunk from that recent 4-vessel acquisition. GSL did get a follow-on charter for Anthea Y, the largest of its vessels that roll off charter in 2023. Vessel was forward fixed and is expected to earn almost $12M of adjusted EBITDA. Plus points for the latter in a currently uncertain container shipping market.
Positives
- Revenue picture - the $2.1B backlog is quite good. In particular, the next two years looks good. While GSL does have charter risk, their charterers are typically larger and more established entities (large liner companies) i,e, less risk than ESEA charterers.
- Buybacks - GSL approved a $40M share buyback and have continued to buy back shares in 2023. Through April 2023, GSL had re-purchased over 785K shares. 2023 re-purchases have been completed in the price range $16.12 - $18.69/sh (also good for a marker). Around $6.2M is left on that authorization, and GSL have purchased over 1.84M shares (about 5% of its outstanding shares)
- GSL debt position - Under $900M, but will likely bump up after the four vessel acquisition. Still good as GSL managed to complete a “debt punt” in mid 2022. The “debt punt” involved paying off more expensive debt and moving debt down the road at a lower rate.
The risks mentioned in the earlier GSL thread remain
- Macroeconomic picture - still hazy. The shorter charter terms are a sign of the haziness.
- Age of fleet - acquiring four 18 - 20 year old vessels is not really helping too much on the fleet age side. I suppose it could count as a positive if GSL sells 23 year old vessels in the next year or so.
- Environmental regulations. Too early to tell. IMO regulations have taken effect, but I think most vessel owners will lean towards the easiest route - slow steaming, to meet the requirement. But standards get tighter in the years ahead.
GSL Q1 2023 earnings release:
Global Ship Lease Reports Results for the First Quarter of 2023 | Global Ship Lease
Sold most of my GSL position in Q1 2023. Nibbled again in May 2023. As noted earlier, the GSL share re-purchase range and average price ($17.50) provide good markers. Excluding dividend payouts, my GSL cost basis is around the average buyback price.